Market Disruptions and Nonprofits

The good news is I hear the words "business model" in conversations with nonprofit leaders at an increasingly frequent rate.  Early in my career this throw-away comment by a panelist changed my perspective on my work: "'Nonprofit is a tax status, not a business model."  While I do hear the term "business model" more often, there is still a deficit of nonprofits with the knowledge and experience to be able to fully articulate their business model in a construct that encourages disruption thinking.

Although I continually cycle through risks and threats to the nonprofit I run, until starting business school I didn't have all the tools I needed (along with the business vocabulary) to (1) identify disruptions, (2) compare business models, and (3) make the type of refinement and positioning decisions to survive disruption.

A disruption could be due to a new entrant to the market, a new value expectation of consumers, disruptive innovation, or disruptive technology. Many old guard nonprofits have been entirely supplanted due to disruptions.  Examples of technology disruptions in the nonprofit sector:

• The internet and social media changing traditional donor relations
• Nonprofits with a core service of gathering information and making connections (volunteer centers, resource centers, associations); services that can now be completed by individuals using the internet
• Advocacy membership organizations struggling to communicate the value-add of membership

As Community Shares begins a new phase of strategic planning, I am strongly advocating we focus on disruptions and our ability to compete.  Some examples of disruptions torpedoing Community Shares:

• Corporate philanthropy being displaced by cause marketing
• The internet is a disruptive innovation on several levels - most importantly making it easier for small nonprofits to be able to accept a high volume of small donations
• The entrance of for profit companies reframing philanthropy as contests, initiatives, and one-time events
• Most devastating, the misleading message of "free" in the sector - the equivalent of offering a similar product at a lower price

Although the "culture of free" refers to the movement to make creative content free, I believe the culture of free (free information, free download, free shipping, fee-free) is a crippling disruption to the nonprofit sector.  For Community Shares, there is a growing value expectation that there should be no fees associated with charitable gifts.  High profile campaigns trumpeting "no fees" (e.g., GivingFirst.org, Whole Planet Foundation) access to far superior resources (foundation corpus, corporate profits) and have inadvertently made it harder for nonprofits to justify necessary fundraising costs.

For years, Community Shares' greatest market competitor was United Way.  Now our greatest disruptive force is the rapidly changing value expectation of our donors for our services.  How will Community Shares compete with free?

You can download a free copy of the Harvard Business review article Surviving Disruption at Innosight.

How well is your nonprofit positioned to survive disruption?